CapitaLand Investment: Surpassing Its Capital Recycling Target With ION Orchard Divestment

CapitaLand Investment, or CLI, is divesting its 50% interest in ION Orchard to its sponsored REIT, CapitaLand Integrated Commercial Trust, or CICT, for SGD 1.1 billion. The divestment will take the group’s year-to-date total capital recycling to SGD 3.6 billion, surpassing its annual capital recycling target of SGD 3 billion. Management shared that the divestment proceeds will be used to further diversify its portfolio across geographies and asset classes, as well as to establish new fund products to boost its fee-related income. Given that ION Orchard is a high-quality retail asset located in the heart of Singapore’s key retail district, Orchard Road, we are positive about this divestment as it allows the group to unlock value from the asset. In addition, CLI will continue to earn recurring fee income and retain some exposure to the mall’s performance through its 24% stake in CICT. To complete this acquisition, CICT is raising SGD 1.1 billion through an equity fundraising exercise. CLI has undertaken to fully subscribe to its portion in the preferential offering, underscoring its support for the trust. On the pricing front, we think the group is selling to CICT at a fair price. Based on the 7.1% gross yield shared by CICT’s management, we estimate that the net property income yield is around 5%, comparable with CBRE’s retail prime yield of 5.2% as of June 30, 2024.